In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Archives: 12/2012

By now you’ve probably seen the economically ignorant, Ed Asner-narrated polemic from the California Federation of Teachers that “explains” how the rich hurt everyone because they are just so darn greedy. At one point in the original version the already loathsome Richy Rich actually goes so far as to relieve himself on the middle- and lower-class people above whom he rises on his pile of cash. Don’t look for that “trickle down” visual now, though. It seems the CFT has edited it out after getting, shall we say, less than positive reviews for it. The rest of the tedious allegory, however, isn’t much more subtle.

It’s the reality-denying hypocrisy of it all, though, that is so grating. You see, teachers and unions want to profit just as much as reviled “Wall Street fat cats.”

“What?!” I can hear the teachers reading this scream. “I don’t do this for the money! How dare you, sir!”

Mr. and Mrs. Teacher, please bear with me for a moment. I mean you no harm.

First, undertsand what profit is. Basically, it is making more from providing something than it costs to produce it. So if you are a teacher and use your earnings to buy food, housing, cable television, garden gnomes, airplane tickets, plastic surgery – anything – you are making a profit. And on an hourly basis likely a good profit, outpacing accountants and auditors, insurance underwriters, registered nurses, and other professionals. And that is without considering quite generous benefit packages public school employees often get.

Those concrete things, though, are not the compensation limits. There’s also substantial job security that comes with tenure, and in conjunction with teaching not being especially hard to break into, relatively little personal risk. Contrast that to entrepreneurs – you know, people who sometimes become fat cats – who often risk much of what they have to try new things that often end in failure. Such risk is a huge cost teachers simply don’t deal with.

In addition, while working with children is often very challenging, it can also be very rewarding. Who doesn’t get a kick out of the antics, questions, and comments of little kids? (I mean, they say the darndest things, right?) Or enjoy seeing their smiling faces. And when they get older, it can be very gratifying to guide them or inspire them as they contemplate what they want to do with their lives. In contrast, running a business involves often stultifying detail work such as running payroll, securing office space, keeping “the books,” dealing with detailed government regulations, etc.

Finally, and perhaps most importantly, there is nothing wrong with making a profit! Indeed, being profitable is generally the key to knowing that what you are doing is in demand – that you are providing something that makes other people better off – and, because you are earning more than the cost of production, you are doing something sustainable. So teachers, don’t disdain profits – embrace them!

Perhaps, though, be concerned about how you are getting them.

While there is far too much crony capitalism at work – businesses enriching themselves through government and politics – in general, companies can only make profits by earning the voluntary business of customers. In other words, they have to provide something people want, at a cost they are willing to pay. Payers have to feel they are better off.

Not so for public school teachers. Rather than getting paid by voluntary customers, they are ultimately paid with money extracted through government. Whether taxpayers like it or not, they are forced to pay for public schools. Which is, of course, why teachers’ unions are so deeply involved in politics. They want to take people’s money no matter what.

The real irony is that many teachers could probably get paid more – in Korea some get MUCH more – were free enterprise rather than socialism allowed to reign. But we have a government monopoly, which is ripe for union control. One system, without any real competition, is best suited to have one employee rep. Allow people to freely choose among autonomous schools, however, and schools would have big incentives to pay the best teachers well because providing a great service – not throwing around political weight – would be the key to success.

Teachers, ultimately, are human beings, and on the whole almost certainly enjoy profit as much as anyone else. That’s not a problem. The problem is how they – and much worse, their unions – make it.

In today’s Washington Post, David Ignatius makes the case for a Trans Atlantic Free Trade Agreement (TAFTA), also referred to as a U.S.-EU Free Trade Agreement. He notes that:

a 50 percent reduction in non-tariff barriers (such as unnecessary or duplicative standards) could boost GDP by roughly $160 billion in Europe and $53 billion in the United States. Abolishing all tariffs could produce gains of up to $86 billion for Europe and $82 billion for the United States.

I weighed in on this a few weeks ago. I was skeptical then, and I’m still skeptical now. But that doesn’t mean I’m completely opposed to the idea. Ignatius is right that there would be some large benefits. However, his op-ed highlights some of my concerns.

He notes that in talking about this idea, Hillary Clinton referred to the “long-standing barriers to trade and market access” that would have to be removed to make the deal possible, such as the European Union’s protectionist agricultural rules. First of all, let’s not forget the United States’ protectionist agricultural rules. Europe is not the only offender in this area. Second, let me quote a recent Reuters article on this point: ”… both sides appear likely to leave much of the highly sensitive agricultural sector out of the agreement altogether, diplomats say.” So, yes, there would be great benefits to removing protectionist agricultural barriers, but it’s not clear that will be part of this proposal!

Ignatius also says:

Combined with the North American Free Trade Agreement in Latin America and the ­Trans-Pacific Partnership in Asia, [the TAFTA] could create a global trading system that might be an enduring part of Obama’s legacy.

Well, sort of. A real “global” system would be done globally. Lots of bilateral and regional agreements create a bit of a mess. If you have different rules for some countries than for others, you end up with absurd litigation about where a product “officially” comes from. Here’s a recent example, from a well-known trade lawyer:

this is a case about whether plasma televisions and video monitors made in Mexico are entitled to be treated as originating under the North American Free Trade Agreement. If so, they may enter the United States free of duty and merchandise processing fee. The problem for Samsung is that the imported units include an assembly from Korea that consists of a plasma flat panel and various support electronics. Under the relevant NAFTA rules of origin, if that non-originating Korean assembly is classifiable as a “flat panel screen assembly” of 8529.90.53 in the HTSUS, then it fails to satisfy the tariff shift requirement of the NAFTA rule of origin.

So, the question is whether two specific configurations of subassemblies are FPSA’s. It turns out that is a complicated question because FPSA is not defined in the tariff nor in the relevant Explanatory Notes. …

…

… Looking at the two modules at issue, the Court found that each satisfies its requirements to be classified as an FSPA. Consequently, the non-originating components failed to satisfy the NAFTA tariff shift requirement and the imported products were not entitled to duty-free entry under the NAFTA.

There are more details at the link, if you really want them. The basic gist is that the product at issue had enough Korean content that it did not qualify for duty-free treatment under the NAFTA. This kind of thing is great for trade lawyers, but not so good for free trade!

So, there are some real problems with a bilateral trade agreement with Europe. That’s not to say I would oppose it. It may be the best we can do right now. Some day, though, I hope we can do better.

At the Volokh Conspiracy, my occasional co-author Jonathan Adler dresses down PolitiFact-Georgia for declaring “false” my claim that Georgia law prohibits state employees from implementing an ObamaCare Exchange. If you place faith in “fact checkers,” you might not want to read it. My response to PolitiFact-Georgia is here.

There were two Republicans on the House Budget Committee – chaired by Ryan – who voted against Ryan’s budget last spring: Rep. Justin Amash and Rep. Tim Huelskamp. Amash and Huelskamp were just kicked off the Budget Committee, which Ryan is going to continue to chair.

Now consider this quote from an unnamed House GOP leadership aid as reported by The Hill: “Changes are made for a variety of reasons, most often at the request of committee chairs.” That makes it pretty clear that Ryan played a role – if not the role – in getting rid of Amash and Huelskamp. Yet – to my knowledge – conservatives haven’t trained any of their fire on Ryan.

This sleazy system is designed in part to deceive the American people, and the current squabbling over the fiscal cliff is a good example. The President claims he has a “balanced approach” that involves budget cuts, but look at the second chart at this link and you will see that he’s really proposing bigger government.

…President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of “baseline budgeting.” …numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill’s “baseline” has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms. …Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending “cut.” Chris Wallace called Timothy Geithner on this “gimmick” on “Fox News Sunday” this week, only to have the Treasury Secretary insist it’s real. …in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. …If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he’s cutting spending even as spending and deficits keep going up and up and up.

But let’s return to the American fiscal situation. Republicans almost certainly will lose the battle over the fiscal cliff because they meekly are playing cards with a rigged deck controlled by the other side.

They key thing to understand is that (barring a recession) tax revenues rise every year. Indeed, the Congressional Budget Office projects that tax revenue will climb by an average of more than 6 percent annually over the next 10 years - even if the 2001 and 2003 tax cuts are made permanent.

So all that’s really needed to bring red ink under control is a modest bit of spending restraint. This video is from 2010, but the analysis is still completely relevant today.

It’s amazing how good things happen when you follow the Golden Rule of fiscal policy.

I conducted an informal survey of a number of insurers…None of the people I talked to are academics or work for a think tank. None of them are in the spin business inside the Beltway. Every one of them has the responsibility for coming up with the correct rates their companies will have to charge…

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms…

In states with the least mandates or for health insurance companies with the tightest underwriting now, the increase could be a lot more…

[E]xpect individual health insurance rates for people in their 20s and early 30s to about double…

Will the feds be ready to provide an insurance exchange in all of the states that don’t have one on October 1, 2013?

I have no idea. And neither does anyone else I talk to inside the Beltway. We only hear vague reports that parts of the new federal exchange information systems are in testing.

The former CIA director couldn’t get away with an affair in this town but the Obama administration has a complete lid on just where they are on health insurance exchanges and haven’t shown any willingness to want to talk about their progress toward launching on time––except to tell us all not to worry.

We are all worried. I would not want to be responsible for the work that remains and only have ten months to do it…

The Republicans said this would not work. If it does not launch on time, or does with serious problems, I would not want to be an incumbent Democrat.

Three years ago the climate world was set ablaze by the release of thousands of “Climategate” emails from the server at the University of East Anglia. The ruling climate establishment, which I now call “hotheads”, showed itself threatening editors of journals who dared publish my papers, and engaged in a wide variety of other shady and nefarious practices.

I didn’t realize until the Climategate circus that my view on climate change had generated a moniker. I was branded—accurately—a “lukewarmer”, meaning that my synthesis of climate behavior is that global warming is real, and caused in part by people. It is also exaggerated, both in magnitude and effect. My new Center studies why this occurs, and finds similar dynamics operating across many fields of federally-sponsored science.

Apparently this view is getting, as is said here in Swamp-By-the-Potomac, “traction”.